Elon Musk warns against margin debt on risk of market ‘mass panic’

Billionaire Elon Musk is warning against something he’s done himself — borrowing against the value of one’s securities — because of the risk of a “mass panic” in the stock market.

“I would really advise people not to go into debt in a volatile stock market and you know, from a cash point perspective, keep the powder dry,” Musk said on the All-In podcast released Friday. “You can get some extreme things in the down market.”

Tesla Inc.’s CEO put billions of his own money into Twitter Inc. when he bought it earlier this year for $44 billion and saddled the company with $13 billion in debt. Bloomberg News reports that Musk’s bankers are considering replacing some of the high-interest debt he posted on Twitter with new margin loans backed by Tesla stock, which he would personally be responsible for paying.

Tesla Margin-Loan Talks Show Rising Pressure on Musk, Bankers

It has also dumped nearly $40 trillion of Tesla stock, which helped push the stock to a two-year low. After the recent selloff, Musk said again this week that he will stop selling the stock, adding that the hiatus could last two years or more.

The warning, at least Musk’s second this month, is ironic because the billionaire has previously pledged his Tesla shares. As of December 2020, Musk held 92 million Tesla shares as collateral, according to an April 2022 SEC filing.

When macroeconomic risks are present, it is generally a good idea to avoid using margin loans in any business, as stocks can move in ways that deviate from their long-term potential.

In the podcast, Musk also reiterated his belief that the economy is overdue for a recession and that the slowdown could be similar in scale to that seen in 2009.

“My best guess is that we have storm periods for a year to a year and a half, and then the dawn comes out in about Q2 2024, that’s my best guess,” Musk said. “Booms don’t last forever, but neither do recessions.”

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